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An interest-only mortgage lets you pay just the interest each month, keeping payments lower - but you’ll still owe the full amount you borrowed at the end, so a solid repayment plan is key. This 2025 guide explains how these mortgages work, compares lenders, and covers Buy to Let and retirement interest-only options too.
KEY INFORMATION
In a nutshell: You only pay the interest each month, not the loan. Payments are lower, but you’ll still owe the full balance at the end, so you need a solid repayment plan.
An interest-only mortgage is where your monthly payments cover only the interest due on the loan. You don’t reduce the capital, so you’ll still owe the full balance at the end of the term.
This means your mortgage payments will be lower, but at the end of the mortgage term you will still owe the original amount you borrowed which you will need to repay.
| Interest-only mortgage | Capital repayment mortgage |
| Only pay the loan’s interest. At the end of the term, you need to pay back the original amount borrowed. | Repayments cover interest on the loan and part of the amount borrowed. At the end of the term your mortgage will be paid off. |
| Mortgage repayments will be lower. | Mortgage repayments will be higher. |
| Higher risk of negative equity. This is because you won’t build up equity in your home via your mortgage payments which means you’re more exposed to changes in house prices. | You’ll build up equity in your home over time by making your mortgage repayments. |
| More expensive overall than a repayment mortgage as you’ll continue to pay interest on the original amount you borrowed. | You’ll pay less interest overall. |
Say you borrow £250,000 over 25 years:
However, you can get ‘part and part’ mortgages, which are a combination of both repayment and interest-only mortgages.
There are a number of types of borrowers who may choose interest-only mortgages:
Homeowners can take out interest-only mortgages but lenders’ interest-only mortgage criteria is stricter than if you’re taking out a residential capital repayment mortgage.
Most Buy To Let mortgages are interest-only. The main benefit to landlords is that monthly mortgage payments are lower. They will still have to pay off the original sum borrowed at the end of the term. However, the landlord may plan to sell their property to pay off the mortgage at the end of the term. See more information on Buy to Let interest-only mortgages below.
Retirement interest-only mortgages are designed for older borrowers who want to live in their home without paying off their mortgage. See more information on retirement interest-only mortgages below.
Get expert advice on interest-only mortgages from fee-free mortgage brokers L&C
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
Interest-only mortgage rates will depend on a number of factors including your deposit size if you’re buying a house or the amount of equity you have in your home if you’re remortgaging.
The easiest way to find out what interest-only mortgage rates you can access is by speaking to a fee-free mortgage broker.
Interest-only mortgage rates are usually different to repayment mortgages rates. In some cases, interest-only mortgage rates are lower than for repayment mortgages, but the arrangement fees may be much higher.
Whenever you take out a mortgage it’s important to check the overall cost when you’re comparing deals – an expert mortgage broker can do this for you.
You’ll also need to decide whether to take out a fixed rate mortgage or variable rate deal:
It’s a good idea to speak to a fee-free mortgage broker to help you decide which type of interest-only mortgage is best for you.
The quickest way to find the best interest-only mortgage rates is to speak to an expert mortgage broker.
Lenders’ criteria for interest-only mortgages can be much stricter than for repayment mortgages. So having an expert who knows the market will save you time and mean you get the best mortgage for you.
Get expert advice on interest-only mortgages from fee-free mortgage brokers L&C
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
Interest-only mortgages are offered by a wide range of mortgage lenders including:
However, if you’re looking for an interest-only mortgage, the best mortgage lender for you will depend on your circumstances. So speak to a fee-free mortgage broker.
Lender criteria for interest-only mortgages in the UK can be mush stricter.
However, each lender has its own lending criteria so if you’re interested in finding out more about interest-only mortgages it’s a good idea to speak to a fee-free mortgage broker. They’ll discuss your circumstances and be able to advise you on the lenders that may be most likely to accept your application.
| Lender | Min Income | Max LTV |
|---|---|---|
| NatWest | £75k sole, £100k joint | 75% |
| Nationwide | £75k sole, £100k joint | 75% |
| Halifax | £75k sole, £100k joint | 75% |
Interest-only mortgage payments are lower than for repayment mortgages because they only cover the interest on the loan.
Here’s an example of how much interest-only mortgage payments are vs a repayment mortgage if you take out £250,000 at rate of 4%, over 25 years.
| Type of mortgage | Monthly mortgage cost |
| Interest-only mortgage | £833 |
| Repayment mortgage | £1,320 |
By putting the money you save on mortgage payments into other investments you may get a higher return and be able to repay the mortgage faster. Although this is a high risk route and it is a good idea to get independent financial advice first.
You don’t have to make life’s big financial decisions alone. Get the right IFA for you today with our partners at Unbiased.
With interest-only mortgages, the amount of capital you owe doesn’t reduce over time and you’ll have to pay interest on the original amount you borrowed throughout the whole term.
This table illustrates how much you would pay overall by taking out an interest-only mortgage vs a repayment mortgage. It uses the example of taking out £250,000 over a 25 year term at a rate of 4%.
| Type | Loan amount | Interest over the term | Total amount to repay (loan + interest) |
| Interest-only | £250,000 | £250,000 | £500,000 |
| Repayment | £250,000 | £145,878 | £395,878 |
Lenders in the UK view interest-only mortgages riskier than repayment mortgages because they require you to have a large lump sum at the end of the term to pay off the loan. As a result, lenders’ criteria is typically stricter than if you apply for a residential capital repayment mortgage.
If you take out a repayment mortgage, you’ll build equity over time as you make your mortgage payments. However, if you take out an interest-only mortgage, you’ll be relying on house price increases to build any more equity in your house. But if your house’s value drops, you’ll be at more risk of negative equity.
Before taking out an interest-only mortgage, you need to think seriously about what if you can’t afford to pay off the lump sum at the end of the term? For example if the repayment vehicle you have put in place doesn’t perform as well as you had hoped. This means you might have to sell your home.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
David Hollingworth at L&C Mortgages said: “Interest-only does what the name implies, and the monthly payment only covers the interest charged on the mortgage. That requires an alternative repayment strategy, such as a separate investment vehicle, to be in place to hopefully grow adequately to repay the balance by the end of the term.
“This choice is often talked about as an either/or decision but it’s possible to split the mortgage into separate elements and structure it on a part repayment, part interest-only basis. The flip side is the risk that the repayment vehicle will not grow adequately to meet the outstanding mortgage amount. That’s why it’s important to keep the repayment vehicle under regular review.
Get expert advice on interest-only mortgages from fee-free mortgage brokers L&C
Use the calculator below to compare interest-only vs repayment costs instantly.
The vast majority of Buy to Let mortgages taken out by landlords are on an interest-only basis, not repayment.
Interest-only mortgages have lower monthly repayments which makes repayments more affordable. Landlords may decide to sell the property at the end of the term to pay off the mortgage.
The amount you can borrow on a Buy to Let mortgage depends on the amount of rental income you expect to receive:
Get fee-free Buy to Let mortgage advice from award-winning mortgage brokers L&C
The minimum deposit required for a Buy To Let mortgage is generally 20-25% of the purchase price. However, this can vary according to the amount of rental income you expect to receive.
Get an idea of how much you could borrow with our Buy to Let mortgage calculator.
If you purchase a Buy To Let (and you already own a property), in England and Northern Ireland, you’ll pay the stamp duty surcharge of 5% on top of normal stamp duty rates. Plus, you’ll pay higher rates in Scotland and Wales too. See more information in our guide on stamp duty for Buy to Let.
If your Buy To Let property rises in value by the time you sell it, you may need to pay capital gains tax (CGT). CGT charged on second properties is 18% on gains made when selling the property for lower rate tax payers, and 24% for higher rate tax payers. But this only applies to gains that exceed your capital gains allowance, which is £3,000 per person in the tax year 2025-2026.
You can reduce your CGT bill by off-setting costs like Stamp Duty and legal fees. It can be a good idea to get independent tax advice. Our partners at Unbiased can match you with the right tax adviser.
When you’re a landlord, the rent you receive on your rental properties is treated as taxable income and may be liable to income tax. But you can reduce the tax you have to pay by deducting certain ‘allowable expenses’ such as letting agent fees and property maintenance. Again, you may benefit from independent tax advice.
In the past, landlords could offset mortgage interest and Buy To Let mortgage arrangement fees against their income tax bills at up to 45% for the highest earners. However, this tax relief was phased out between 2017-2020 and has been reduced and capped at 20%.
You don’t have to make life’s big financial decisions alone. Get the right IFA for you today with our partners at Unbiased.
There may be different options open to you if you are older, in the form of retirement interest-only mortgages and lifetime mortgages (a type of equity release):
Retirement interest-only mortgages are aimed at borrowers aged 50 or older who struggle to get other types of mortgages due to their age.
RIO mortgages work in a similar way to standard interest-only mortgages because you’ll take out a loan against your property and make monthly payments to cover the interest.
But there are major differences:
If you take out a joint retirement interest-only mortgage, the property will only be sold when you both either die or move into long-term care. Find out more in our guide What are retirement interest-only (RIO) mortgages and should I get one?
Sarah and Peter own a house worth £400,000 and borrow 25% (£100,000). They take out a retirement interest-only mortgage at 5% and make monthly interest repayments of £417.
If they go into long-term care in 10 years’, their house will be sold to repay the £100,000 debt.
Assuming Sarah and Peter’s property is now worth £450,000, £350,000 would be left after the sale of their home. And they would have paid £50,036 in monthly interest repayments over the 10 years.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
If you’re a homeowner aged 55 or over, equity release is a way of releasing money from the value of your home without having to move out or pay it back during your lifetime.
Read more in our guide Is equity release right for me? And see more guidance on mortgages for over 50s.
A part and part mortgage is a combination of both repayment and interest-only mortgage.
This means:
Before taking out an interest-only mortgage, you’ll need to work out how you’ll repay it at the end of the mortgage term. Here are some options you may consider:
Once you’ve set up your plan, review it often to make sure it’s on target. Bear in mind that your lender may check in from time to time asking you to show them that your payment plan is on track.
Also, keep an eye on house prices because if you need to sell the property to repay the loan and it’s worth less than you bought it for you’ll need to make up the shortfall. If you’re worried that you’ve fallen behind with your repayment plan you can seek free financial advice from MoneyHelper.
When you get to the end of your mortgage term and it’s an interest-only deal, here’s what happens:
If you can’t repay your interest-only mortgage at the end of the mortgage term you may have a number of options:
Here’s how to get an interest-only mortgage in 5 steps:
– This depends on your circumstances because although you’ll benefit from lower mortgage payments, you won’t be paying off any of the capital you’ve borrowed so you’ll need to have a plan of how to pay this off. Plus, these mortgages have stricter eligibility criteria.
– However, one exception is Buy to Let mortgages as interest-only mortgages are common with these mortgages.
If you take out a £100,000 interest-only mortgage at a rate of 4%, your monthly repayments will be £333. By comparison, if you take out a repayment mortgage over 25 years, you’ll pay £528 a month, in the initial term. To see instantly how much you’ll pay on your mortgage and compare repayment mortgages to interest-only, use our handy interest-only repayment calculator.
An interest-only mortgage is where your monthly payments cover only the interest due on the loan. You don’t reduce the capital, so you’ll still owe the full balance at the end of the term. Read more in our guide on Understanding mortgage types and what one you need.
Typically more than for a repayment mortgage. Many lenders expect at least 25% deposit/equity, and some require more depending on your income, property and repayment plan.
While this will vary by lender, for an interest-only mortgage you’ll usually need a bigger deposit than you would for a residential repayment mortgage.
Yes, however you may find you need a higher joint income than if you apply on your own.
Like all mortgages, interest-only mortgage rates in the UK can change quickly. So the best – and quickest – way to find out what interest-only mortgage rates is to speak to a fee-free mortgage broker.
Most BTL loans are interest-only to keep monthly costs down. Lenders assess rental income (and sometimes personal income). Many landlords plan to sell the property at term end to clear the balance.
Interest-only mortgages may suit landlords, higher/ variable earners with bonuses, asset-rich borrowers, later life borrowers (via Rio mortgages). But they may not suit anyone without a realistic payment plan or tight affordability. But for tailored advice based on your circumstances, speak to a mortgage broker.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ, authorised and regulated by the Financial Conduct Authority (FRN: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of LifeSearch Limited, an Appointed Representative of LifeSearch Partners Ltd, authorised and regulated by the Financial Conduct Authority. (FRN: 656479).
Independent Financial Adviser service is provided by Unbiased, who match you to a fully regulated, independent financial adviser, with no charge to you for the referral.
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